Hunting for the best passive income opportunities on the stock market is a core part of my investment strategy. I believe Admiral (LSE:ADM) is a perfect stock to boost my passive income stream. Here’s why I’m bullish on the shares.
Car insurance giant
As a quick reminder, Admiral is one of the leading insurance providers in the UK, with roots stretching back to 1993. It is best known for car insurance products and specialises in low cost car insurance for drivers of all ages and abilities, as well as providing insurance for higher performance specialist vehicles. It also provides home, travel, and pet insurance too.
So what’s happening with Admiral shares currently? Well, as I write, they’re trading for 2,227p. At this time last year, the stock was trading for 3,268p, which equates to a 31% decline over a 12-month period. Admiral’s share price drop does not concern me. Many UK shares have pulled back since the turn of this year due to macroeconomic factors as well as the tragic events in Ukraine.
Passive income stocks have risks too
Despite my bullish attitude towards Admiral shares and the passive income opportunity, I must note real risks of investing in the shares. Firstly, the way Admiral operates, as well as its balance sheet, is a risk for me. Simply put, its balance sheet and financial health is linked to an extensive investment portfolio. This portfolio helps support claims. If this portfolio were to take a hit or decline for any reason, Admiral’s financials and returns could be affected.
Finally, competition in the insurance sector is intense. The recent rise of comparison sites and many smaller firms has hurt the dominance and market share of bigger providers such as Admiral. This is a development I must keep an eye on.
The bull case
First of all, Admiral has defensive attributes. This is because in the UK, car insurance is a legal requirement. Anybody driving a vehicle must be insured. Despite current economic headwinds or any downturn, people still need transport to get to and from work and other activities so insurance levels will always remain healthy.
Next, at current levels, Admiral shares look excellent value for money on a price-to-earnings ratio of just 11.
So to the passive income fundamentals then. This is measured by dividend yield. Admiral’s current yield stands at an exciting 10%. This is much higher than the FTSE 100 average of 3%-4%. It is worth remembering that dividends are never guaranteed, however.
Finally, Admiral has a good track record of performance too, although I do understand that past performance is not a guarantee of the future. Looking back, I can see it has grown revenue for the past three years and gross profit for the past four years.
Overall, I like Admiral shares as a passive income opportunity. I would add the shares to my holdings to boost my income stream from dividend paying stocks.